Begbies Regulatory News (BEG)

9 Jul 2009 07:00



9 July 2009 

Begbies Traynor Group plc

Final results

for the year ended 30 April 2009

Begbies Traynor Group plc, the specialist professional services organisation, today announces its final results for the year ended 30 April 2009.

Financial highlights

Revenue from continuing operations increased by 29% to £62.1m (2008: £48.1m)

EBITA* (pre-exceptional items) increased by 35% to £11.0m (2008: £8.1m)

Adjusted profit before tax** up 40% to £9.8m (2008: £7.0m)

Profit before tax from continuing operations up 28% to £7.2m (2008: £5.7m)

Earnings per share:

Adjusted basic and diluted EPS*** from continuing operations increased to 7.7p (2008: 6.0p)

Basic and fully diluted EPS from continuing operations increased to 5.4p (2008: 4.7p)

Strong financial position with principal bank debt of £13.2m, comfortably within the banking facilities of £25.0m

* Earnings before interest, tax and amortisation

** Profit before tax from continuing operations of £7.2m (2008: £5.7m) plus amortisation of £1.2m (2008: £1.1m) plus finance charge arising from the discounting of deferred consideration of £0.6m (2008:£0.2m) plus exceptional costs of £0.8m (2008: £nil) 

*** See reconciliation in note 6

Operational highlights

Increase in activity continues - revenues up 30% 

Expansion of insolvency capability through both recruitment and acquisitions

Headcount in insolvency now 427, up 22% from 350 at the start of the year

Headcount in tax division up to 75 (2008: 63) following integration of acquisitions

Corporate finance division impacted by exceptional market conditions:

Loss of £1.1m in the year 

Improved H2 performance following restructuring in winter 2008

Commenting on the results, Ric Traynor, Executive Chairman of Begbies Traynor Group, said:

"I am pleased to report a strong group financial performance this year, in both revenues and profitability, resulting from the significant growth in our core insolvency administration business, which accounts for 80% of the group's revenue.

"The extent of business distress, the increasing volume of formal insolvency appointments and our increased capacity to assist troubled businesses, both in respect of their immediate needs and also over the longer period of rehabilitation or administration, mean we are expecting to see our counter cyclical work flow continue to grow this year and into the medium term.

"Overall, activity levels at the start of the current financial year within the core insolvency business and therefore for the group as a whole are significantly ahead of the same period last year and we will provide an update on progress at the time of the company's AGM in October."

There will be a meeting for analysts at 9.30am, at Smithfield's offices, 10 Aldersgate Street, London, EC1A 4HJ. Please contact Will Henderson (020 7903 0671 / whenderson@smithfieldgroup.com) if you would like to attend.

  Chairman's statement

INTRODUCTION

I am pleased to report a strong overall financial performance by Begbies Traynor Group plc in the financial year ended 30 April 2009. Both revenues and profitability grew strongly, principally resulting from the significant growth in our core insolvency administration business, which accounts for 80% of the group's revenue.

The performance of the non-insolvency businesses, principally tax and corporate finance, has been adversely impacted by the difficult market conditions resulting from the current economic environment. Results from the group's corporate finance division, having particularly suffered from a lack of transactional activity in the first half, improved significantly in the second half of the financial year, due in part to the restructuring of these activities.

Results

Group revenue from continuing operations in the year ended 30 April 2009 was £62.1m (2008: £48.1m), with earnings before interest, tax and amortisation (EBITA) (pre-exceptional costs) of £11.0m (2008: £8.1m).  Adjusted profit before tax** was £9.8m (2008: £7.0m). Profit before tax was £7.2m (2008: £5.7m).  EPS from continuing operations***, adjusted for the net of tax impact of amortisation, exceptional costs and the finance charge arising from the discounting of deferred consideration liabilities, was 7.7p (2008: 6.0p).  Basic and fully diluted EPS from continuing operations was 5.4p (2008: 4.7p).

Gross borrowings at 30 April 2009 were £17.7m (2008: £18.4m), giving gearing of 28% (2008: 37%). Interest cover (pre-exceptional costs) was 6.3 times (2008: 6.2 times).

OPERATIONAL REVIEW - CONTINUING OPERATIONS

Insolvency

Begbies Traynor is the UK's leading independent business rescue, recovery, restructuring and personal insolvency organisation, providing a partner-led service to stakeholders in troubled businesses.

Insolvency revenues increased by 30% over the previous year to £49.7m (2008: £38.1m), with an increase in segmental result of 51% to £11.5m (2008: £7.6m).

The increase in activity levels arising from the adverse economic environment has enabled the division to continue to leverage its operating base, resulting in an increase in EBITA margin to 23% (2008: 20%).

During the year the group further expanded its insolvency capability, through both recruitment and acquisitions. As a result, insolvency headcount has increased from 350 at the start of the year to 427 on 30 April 2009, an increase of 22%, whilst staff attrition has remained at relatively low levels.

During the year our insolvency practitioners were appointed on nearly 1,800 corporate cases, an increase of around 38% on the same period last year. The division remains the largest administrator by number of cases in the UK.  High profile cases included Southampton Leisure Holdings plc, the holding company of Southampton Football Club, and Exchange Insurance.  

In addition, reflecting the division's cross border success, we were appointed as administrator of the UK operations of Tallygenicom, the international software services company, through our Begbies Global Network (BGN) partner in Germany, and we were also appointed administrator of Swarp Spinning Mills in Kenya, through our South African BGN partner.

  Tax

BTG Tax provides specialist tax, fiscal structuring and investigations consultancy to individuals, corporations, independent financial advisors, financial institutions and general practice accountants. 

Revenue in the tax division increased to £7.0m in the year from £2.6m. £2.7m of this increase relates to the full year impact of acquisitions completed in the prior year. Segmental results increased to £0.6m from £0.5m, albeit at significantly reduced margins.

The performance in the second half of the year fell below management expectations. The level of resource within the division was geared to the anticipated seasonal uplift in demand around the tax year end. However, whilst activity levels were higher, fee pressure and the impact of the tough business environment currently being experienced by our corporate and private clients dampened this anticipated uplift, with a corresponding impact on profitability.

The acquisitions completed in the previous financial year are now operating as a national tax practice with a headcount of 75 (2008: 63). This division operates from offices in Birmingham, Manchester and London, and represents one of the largest independent regional practices in the UK.

Corporate finance

BTG McInnes Corporate Finance is a national firm of advisors and capital transaction project managers, providing professional strategic advice whilst also managing and supporting capital transactions.

Corporate finance revenues reduced in the year to £2.3m (2008: £4.8m), resulting in a segmental loss of £1.1m, compared with a segmental profit of £0.5m in the prior year.

As previously reported, the division was significantly impacted by the unprecedented financial and credit market conditions in the autumn of 2008, in which the corporate finance market as a whole ground to a virtual halt, resulting in a segmental loss of £1.0m in the first half of this financial year.

A restructuring of the division was undertaken in the winter of 2008, involving headcount reductions together with the redeployment of corporate finance personnel into the insolvency division. As a result of this, combined with the completion of a number of engagements, the division's financial performance has improved markedly, with an operating loss of just £0.1m in the second half of the financial year. The division now has a headcount of 25, reduced from 38 at the start of the year.

Others (Forensic and Intelligence)

BTG Forensic provides forensic, financial investigation and valuation services whilst BTG Intelligence provides corporate intelligence and investigations services.

Revenues in this segment increased to £3.1m (2008: £2.6m). Segmental results were broadly break-even (2008: loss of £0.6m). These operations have delivered improved results in the year resulting from increased activity levels.

STRATEGY AND OBJECTIVES

The group's strategy is to develop a specialist professional services group, retaining strong counter cyclical revenues, by both organic growth and acquisition. We will:

focus on our core activity of mid-market business insolvency, taking advantage of the growth in work flow resulting from the current economic outlook;

develop our tax division as appropriate, taking into account the likely short and medium term outlook in this market; 

manage the group's exposure to corporate finance in the current market conditions; and

consider opportunities to broaden our range of professional services in due course, when prudent to do so in terms of management resource, funding and prevailing market conditions.

ACQUISITIONS

During the year, the group acquired a number of businesses, as detailed below, for a total consideration of £2.4m.

In May 2008, the group completed the purchase of Fanshawe Lofts, an insolvency and corporate finance practice in Southampton, and Dewey, a small insolvency practice in Cardiff. The group also acquired two small tax consultancies: VATease, based in Birmingham and the Chesham Consultancy based in Bristol.

DISPOSALS

CRM consulting

In October 2008, the group successfully completed the planned disposal of its CRM consulting business.

Consumer insolvency

In the previous financial year the group announced its withdrawal from the consumer insolvency market and initiated a sales process for these activities. Following this process, the debt management business was successfully disposed of in November 2008. Offers received for the IVA case book fell short of the board's expectations and, accordingly, this was retained by the group and is being run off through the core insolvency practice to maximise returns. As a result of these actions, the consumer insolvency operations, based out of the group's offices in Chorley, have now ceased and the Chorley office closed in November 2008.

Discontinued operations generated a loss after tax in the year of £0.8m (2008: loss of £2.8m), which includes a loss on disposal of £0.2m.

DIVIDEND

Having reviewed current trading, the group's continuing investment programme and cash availability, the board has recommended an increase to the final dividend of 13% to 1.7 pence per share (2008: 1.5 pence per share), to be paid on 30 October 2009 to shareholders on the register on 16 October 2009, with an ex dividend date of 14 October 2009.

This final dividend of 1.7 pence together with the interim dividend of 1.1 pence gives 2.8 pence for the year, an increase of 12% over the prior year.

Over the longer term the board has followed a progressive dividend policy, which takes account of the underlying growth in earnings, whilst acknowledging the requirement for continuing investment to underpin growth. 

PEOPLE

The success of our business is reliant on the expertise, professionalism and commitment of our people and I thank all of them for their ongoing contribution this year. At 30 April 2009, we have 479 direct fee earners (an increase of 7% compared with a year ago), of whom 82 are partners, and 154 staff in support functions.

In addition, in the autumn of this year, and subject to shareholder consent at the upcoming AGM, we plan to launch the next phase of the group's partner reward scheme, which will involve the introduction of long term share incentive arrangements for the wider partner group, through a growth share plan. The board believes that this scheme will form an important motivation and retention mechanism and help to deliver long-term sustainable growth.

OUTLOOK

Insolvency

The group has started the new financial year with the insolvency division performing well and a continuing strong demand for our services.

Red Flag Alert

'Begbies Traynor Red Flag Alert' statistics, which we publish quarterly, monitor adverse actions and other corporate distress signals, such as the issue of county court judgements and winding-up petitions, which are early warning signs of potential insolvency activity. Our most recent survey, published in April 2009, revealed that the number of UK companies experiencing critical or significant problems in the first quarter of 2009 had increased by 87% and 60% respectively, over the same period in 2008. 

We believe that the volumes of corporate and personal insolvencies, as with levels of unemployment, tend to be indicators that lag any change in economic activity and are therefore likely to continue to rise after the commencement of economic recovery.

Insolvency statistics 

Corporate insolvencies in calendar 2008 were nearly 22,000, a 38% increase over 2007, which was the ten year low point in volumes of UK corporate insolvencies.  Given the severity of the current recession, and the increase in the number of corporate entities since the early 1990's, we predict that the volume of corporate insolvencies in the period from 2009 to 2011 is likely to be significantly above the peak levels experienced during the height of the last major recession in 1992, when they reached just under 30,000.

The extent of business distress, the increasing volume of formal insolvency appointments and our increased capacity to assist troubled businesses, both in respect of their immediate needs and also over the longer period of rehabilitation or administration, mean we are expecting to see our counter cyclical work flow continue to grow, this year and into the medium term.

Tax

The group's tax practice is currently impacted by a reduced demand for the higher margin transactional support activities. The performance of this division will be closely reviewed over the coming months to ensure that its resource base is appropriately matched to the market's current requirements, to deliver a satisfactory level of return. However, the board is confident that as the economic outlook improves the need for tax planning and advice will increase and the group will be well placed to provide these services.

Corporate finance

The market for corporate finance services remains extremely challenging, primarily due to the restricted funding available for transactions. The board believes that the resource base is sustainable in the current market place but any recovery to a profitable trading position is reliant on an improvement in the economic environment and a recovery of transactional activity.

Conclusion

Overall, activity levels at the start of the current financial year within the core insolvency business and therefore for the group as a whole are significantly ahead of the same period last year and we will provide an update on progress at the time of the company's AGM in October 2009.

Ric Traynor

Executive Chairman

9 July 2009

  Financial review

FINANCIAL HIGHLIGHTS

The group's revenue from continuing operations in the year was £62.1m (2008: £48.1m), an increase of £14.0m or 29%. This revenue growth was principally delivered through organic growth, notably within the insolvency division. Current year acquisitions contributed £1.5m of revenue in the year.

EBITA increased to £11.0m (2008: £8.1m) at an improved margin of 18% (2008: 17%). This has been delivered through significant margin improvements within the insolvency practice due to higher activity levels, which has been offset by operating losses within corporate finance and lower margins within the tax business as described in the Chairman's statement.

During the year the group incurred exceptional restructuring costs of £0.8m (2008: £nil) in relation to underperforming business areas. Amortisation remained broadly in line with the prior year at £1.2m (2008: £1.1m).

Finance costs increased to £1.7m (2008: £1.3m), due to a £0.3m increase in the charge arising from the discounting of deferred consideration and a £0.1m increase in interest costs due to the higher levels of net debt over the year.

Adjusted profit before tax was £9.8m (2008: £7.0m). Profit before tax was £7.2m (2008: £5.7m).

The reconciliation between these profit measures is as follows:

The tax charge arising on pre-exceptional profits was £2.8m (2008: £1.9m), which represents an effective rate of 35% (2008: 33%). The total tax charge for the year was £2.6m (2008: £1.9m), as a result of the tax credit arising from certain of the exceptional costs incurred in the year, which represents an effective rate of 36% (2008: 33%).

Profit for the year from continuing operations was £4.6m (2008: £3.8m).

DISCONTINUED OPERATIONS 

In accordance with IFRS 5 'Non-current assets held for sale and discontinued operations' the results of the group's consumer insolvency and CRM consultancy operations have been disclosed as discontinued operations in line with the presentation adopted in April 2008.

Discontinued operations generated a loss after tax in the period of £0.8m (2007: loss £2.8m).

EARNINGS PER SHARE ('EPS')

EPS from continuing operations***, adjusted for the net of tax impact of amortisation, exceptional costs and the finance charge arising from the discounting of deferred consideration liabilities, was 7.7p (2008: 6.0p). Basic and fully diluted EPS from continuing operations was 5.4p (2008: 4.7p).

  FINANCING

The group remains in a strong financial position, having completed a placing of new shares in September 2008, which raised £12.5m net of costs. These funds have provided additional working capital to further support our strategy and the organic growth in insolvency activity.

As at 30 April 2009, the group's principal bank debt was £13.2m, comfortably within the banking facilities of £25.0m. The facilities comprise a committed £20.0m, three year, revolving credit facility ('RCF') and a £5.0m overdraft. Interest on the RCF was charged at 1.4% over LIBOR and on the overdraft at 1.5% over bank base rate. The overdraft was renewed on 30 April 2009 with interest payable at 2.75% over bank base rate. At 30 April 2009, £10m of the committed RCF and £1.8m of the overdraft were undrawn. During the year, all covenant measures relating to this facility were met.

The group continues to use other sources of finance as appropriate, including hire purchase contracts and other asset-related bank loans. At 30 April 2009, the group had asset-related finance of £4.5m.

Gross borrowings at 30 April 2009 were £17.7m (2008: £18.4m), giving gearing of 28% (2008: 37%). Interest cover (pre exceptional costs) was 6.3 times (2008: 6.2 times). 

CASH FLOWS

Operating cash flows before working capital movements increased to £11.4m (2008: £9.1m), due to the increased profits generated in the year. Due to the significant organic growth experienced in the year, particularly within the insolvency division, the group's working capital requirement increased by £11.5m (2008: £3.2m). This resulted in cash generated from operations of £nil (2008: £5.8m). Interest and tax payments in the year reduced to £2.2m (2008: £2.9m) due to lower corporation tax payments.

Investing cash flows reduced to £7.9m (2008: £12.9m). This includes payments in respect of acquisitions completed in the year of £1.1m (2008: £6.3m), deferred payments relating to prior year acquisitions of £4.2m (2008: £2.8m) and net capital investment of £2.6m (2008: £3.8m). The prior year included significant investments, including the development of the group's new head office.

Financing cash flows of £9.8m (2008: £10.0m) are due to share issues £12.6m, of which £12.5m relates to the share placing in August 2008. Cash outflows include dividend payments of £2.2m and a net repayment of asset related finance of £0.8m.

NET ASSETS

At 30 April 2009 net assets were £63.7m (2008: £49.4m).

Non-current assets increased to £60.7m (2008: £57.4m), principally due to goodwill and intangible assets recognised on acquisitions in the year.

Current assets increased to £40.7m (2008: £31.3m), principally from increased trade receivables and recoverable income and costs on cases, due to the increased working capital arising from the group's organic growth, offset by the impact of disposals of £1.1m.

Total liabilities decreased to £37.7m (2008: £39.2m), due to a reduction in gross borrowings of £0.7m as noted above; reduced VAT liability due to a change in payment dates in the year of £1.2m; reduction in deferred consideration of £1.3m; offset by an increase in current and deferred tax liabilities of £1.5m. Total liabilities include £6.4m of deferred consideration payments, of which £3.5m is payable within one year.

  GOING CONCERN 

The directors have reviewed the financial resources available to the group and have concluded that the group will be able to operate within the level of its borrowing facilities and have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. This conclusion is based, amongst other matters, on the group's existing borrowing facilities and a review of financial forecasts for a period exceeding twelve months from the date of this announcement. Accordingly, the financial information in this announcement is prepared on the going concern basis.

John Gittins

Chief financial officer

9 July 2009

  Consolidated income statement 

for the year ended 30 April 2009

Consolidated statement of recognised income and expense

for the year ended 30 April 2009

 Consolidated balance sheetat 30 April 2009

 Consolidated cash flow statement for the year ended 30 April 2009

 NOTES

1. Basis of preparation

The results for the year ended 30 April 2009 have been prepared on the basis of accounting policies consistent with those set out in the annual report to shareholders of Begbies Traynor Group plc for the year ended 30 April 2008. 

This financial information has been prepared on a basis consistent with the Begbies Traynor Group plc full financial statements which are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union that are effective for the year ended 30 April 2009. 

This financial information does not include all of the information and disclosures required for full annual financial statements and does not comprise statutory accounts within the meaning of section 435 of the Companies Act 2006. 

The comparative figures for the year ended 30 April 2008 do not comprise the group's statutory accounts for that financial year. Those accounts have been reported upon by the group's auditors and delivered to the registrar of companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.

This comparative data has been re-presented in the current year to reflect adjustments made to the provisional fair value of assets and liabilities acquired in business combinations in the prior year, in accordance with IFRS 3.  The effect of the re-presentation has been to increase goodwill by £204,000, deferred tax assets by £79,000 and trade and other payables by £283,000. This re-presentation has no impact on reported profits, equity or cash flow in the year ended 30 April 2008.

Statutory accounts for Begbies Traynor Group plc for 2009 will be delivered to the Registrar of Companies following the company's annual general meeting. The auditors have reported on these accounts; their report is unqualified and does not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under either section 498(2) or (3) of the Companies Act 2006. The 2009 annual report will be available on the group's website: www.begbies-traynorgroup.com.

The directors have reviewed the financial resources available to the group and have concluded that the group will be able to operate within the level of its borrowing facilities and have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. This conclusion is based, amongst other matters, on the group's existing borrowing facilities and a review of financial forecasts for a period exceeding twelve months from the date of this announcement. Accordingly, this financial information is prepared on the going concern basis.

2. Segmental analysis by class of business

For management purposes, the group is currently organised into four operating segments. These segments are the basis on which the group reports its primary segmental information.

The principal activities are as follows

Insolvency;

Corporate finance;

Tax consulting; and

Other professional services principally its forensics and investigations businesses.

Selected segmental information about these businesses is presented below. 

3. Finance costs

 4. Tax

5. Discontinued operations

CRM consulting

In October 2008, the group successfully completed the planned disposal of Servisional, its CRM consulting business.

Consumer insolvency

In the previous financial year the group announced that it would withdraw from the consumer insolvency market and initiated a sales process for these activities. Following this process, the debt management business was successfully disposed of in November 2008. Offers received for the IVA case book fell short of the board's expectations and as a result the case book was retained by the group and run off through the core insolvency practice to maximise returns. As a result of these actions, the consumer insolvency operations, based out of the group's offices in Chorley, have now ceased and the Chorley office closed in November 2008.

Discontinued operations generated a loss after tax in the period of £0.8m (2008: loss of £2.8m), which includes a loss on disposal of £0.2m.

The results of the discontinued operations which have been included in the consolidated income statement, were as follows:

6. Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

The following additional earnings per share figures are presented as the directors believe they provide a better understanding of the trading position of the group.

7. Dividends

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

RESPONSIBILITY STATEMENT 

The responsibility statement below has been prepared in connection with the company's annual report and accounts for the year ended 30 April 2009. Therefore, certain notes and parts of the directors' report reported on are not included within this release.

The directors confirm to the best of our knowledge that: 

the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and 

the business review, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. 

Approved by the board on 9 July 2009 and signed on its behalf by: 

Ric Traynor John Gittins

Executive Chairman Chief Financial Officer